[From Bill Powers (2006.08.16.1130 MDT)]
JIM DUNDON 08.14.2006.1306EDST --
Perceptions of derivation of value are manifest in economic theories.
Yes, "value" is a term with which economists (and others) have had enormous difficulty. The problem is that people want some objective, external way to measure value so they can determine what price to put on things, or what to pay for them. One thing that got the Chinese psychologist/philosophers excited about PCT is that it offers a new basis for defining value, the idea of the reference signal. Whether you try to identify value with labor, with inventory, with "market value," or anything else, all you do is transfer the problem to whatever you pick. So what is the value of labor, or inventory (stock), or selling vs not selling, or gold, or anything else you want to use as an external measure?
What PCT does is refer value strictly to individual reference levels. "Market value" then becomes a statistical measure over many people -- there is no objective market value, but only the average value that people place on something.
And PCT introduces some other ideas, not altogether new but perhaps with a new slant. The first comes from the idea of conflict. What you spend on one good is not available to be spent on another good, which creates a conflict -- or perhaps I should start saying an interaction -- between purchases of the two goods. Buying one good makes it harder to buy the other one, when the budget is finite. As Bill Williams showed, when the budgetary constraint is great enough, you can actually find people buying more of a good when its price goes up -- the Giffen Paradox, which a PCT model demonstrates very nicely.
The other idea is similar, in that it takes the effort required to buy a good into account. This is like the Marxian proposal for labor-based value, but it de-objectifies it. If you have a high reference level for working, as people who love their jobs do, you are more willing to trade labor for goods than if you hated the work. So working is just another good with a variable value that depends on individual reference levels. With the simple open-loop models you find in economics texts its impossible to deduce how these variables would interact. With the PCT model, it's a snap.
The perception of derivation of value in the Axiomatic Theory of Economics
[Victor Aquila; see attatchment] discards the notion of supply and demand and says value is determined by stock [as in amount in store]. If there is supply and demand they are emergent variables. [I think]
I'd agree that supply and demand is emergent from a more basic theory, but I don't think that Aquila's theory will hold water. No matter how many buggy whips are in the store, the market for them will be dismal. It all comes back to individual reference levels, which are determined by many factors other than supply.
There is a basic flaw in all conceptions of supply and demand that I have seen, which is that they predict infinite demand for free goods. That is far from the truth. If I order 100 pounds of manure to fertilize my lawn, I will not order 1000 pounds if you cut the price by a factor of 10, or 100, or give me the last 900 pounds free. I want 100 pounds of it and have no desire to deal with any more than that. One hundred pounds is "enough" -- that is, it satisfies my reference level for manure, and any more than that would create error signals. At least Aguilar recognizes the concept of satiation, though I don't see that it figures into his theory.
The concept of "enough" is missing from economics, as far as I can see (maybe not in agent-based economics, but I don't know enough about it to say). If you give a bigger reward, it is assumed, you get more labor. This has been disproven innumerable times, but economists don't want to give up that idea. The idea of "enough reward" or even "too much reward" strikes them as nonsensical, I guess. They don't seem to see that getting more than you want of something changes it from being a reward into being something else.
···
===========================================
Aquilar seems to be working up to something like the concept of a reference level; however, his "point of indifference" is not really compatible with PCT because he assumes that simply lowering the price below that point will cause a person automatically to buy the good, or raising the offer above that point will cause the person to sell the good. If a person has a reference level for the good, however, this doesn't work. If I don't want a blue elephant, I don't think the indifference price would be in anyone's ballpark, and if you offer me a gross of buggy whips I simply won't take them at any price, even free.
Introducing money brings in the relationship between multiple goods I may or may not want. If I'm an entrepreneur, and the money is really what I care about, then I don't really have any reference level for the goods, and I can only set values according to the market, which tells me how much I'm likely to get for goods, or spend to acquire them. But if I'm just a consumer, my preferences for the goods are the main factor in buying and (sometimes) selling, with the money being just a means to acquire goods. I can't eat money, or wear it, or live in it, or laugh at it.
I think Aquilar's linear array of indifference points is too simple and one-dimensional, as well as implying that no matter what the good, there is always a price at which someone can be induced to buy it, and another at which the person can be induced to sell it -- induced by the price alone, that is. This is a simple stimulus-response model of the human agent, and I don't buy it, needless to say -- at any price.
Best,
Bill P.